Embed Doc
Copy Link
Readcast
Collections

CommentGo Back

Download

STARBUCKS:MANAGING A HIGH GROWTH BRAND

INTRODUCTION

In less than a decade, Starbucks was transformed from a fledglingwhole-bean coffee retail chain into a globally recognized brand. Fromits IPO in 1992 to 2006, Starbucks grew to more than 10,500 storeslocated throughout North America, Latin America, the Pacific Rim,Europe, and the Middle East. Growth of the corporation’s coffee retailbusiness continued at the rapid pace of three store openings a day onaverage. With over 35 million customers each week, Starbucksrecorded revenues of $6.4 billion in 2005 (see Exhibit 1 for revenuegrowth data). Moreover, joint ventures with some of the nation’sstrongest corporations, including Pepsi, Kraft, Dryer’s, and CapitolRecords, allowed Starbucks to launch a lucrative consumer productsdivision to complement its cafe business. Licensing partnerships withother companies such as United Airlines, ITT Sheraton, and HostMarriott further added to the growth of the Starbucks brand. Indeed,Starbucks rose to become one of the most impressive high-growthbrands of the 1990s and early twenty-first century.Despite this remarkable growth, some questioned whetherStarbucks began to lose focus as the company strove to constantlyreinvent itself. Critics wondered if perhaps the brand grew too quicklyto remain focused on its core values and business objectives. When James Donald took over as the company’s third CEO in 2005,Starbucks had expanded its offerings to diverse interests such ascredit cards, liquor, music, and was looking into the film industry. Asthe company added more components of a “lifestyle” brand tocomplement its core coffee offering, it needed to be careful that thecoffeehouse concept responsible for its success retained its appealwith consumers.

COMPANY BACKGROUND

American coffee consumption had been on the decline for more than adecade when Seattle entrepreneurs Jerry Baldwin, Gordon Bowker, andZev Siegl opened the first Starbucks in Seattle’s Pike Place Market in1971. By the 1970s, the country’s major coffee brands were engagedin a bitter price war that forced them to use cheaper beans in theirblends to reduce costs, resulting in a dramatic decline in the quality of America’s most popular coffees. Accompanying this decline in qualitywas a decline in coffee consumption, which had peaked at 3.1 cupsper day in 1961. As Americans gradually became disenchanted withthe store brands, java enthusiasts—concentrated primarily on theWest Coast—began experimenting with the finer coffees of Europethat offered richer, fuller flavors.1

of 21|

Page

To harness the potential of the gourmet coffee trend in theSeattle area, the founders of Starbucks experimented with the newconcept of a store dedicated to selling only the finest whole-beancoffee and coffee brewing equipment. At the time, Starbucks coffeewas not brewed in-store, but rather by consumers themselves afterthey took the whole beans or grounds home. This emphasis on qualitywhole-bean coffee retail was fairly unique; only a handful of Americancities had stores like Starbucks up to that point. Such a store wouldsatisfy the demand of Seattle’s gourmet coffee enthusiasts for high-quality coffee products that could previously only be obtained throughcatalogs from companies in Europe. Starbucks also sought to convertSeattleites who had never experienced gourmet coffee to break awayfrom traditional brands and integrate the finer European coffee blendsinto their daily lives.From the start, Starbucks placed quality as its top priority. TheStarbucks founders recognized that if they wanted to enhanceSeattle’s appreciation for fine coffee, they had to provide the bestingredients and brewing equipment to ensure that customers had themost enjoyable coffee experiences possible. The Starbucksmanagement dedicated a great deal of their time and financialresources to establishing strong relationships with coffee growers fromaround the world. To distinguish their coffee from the bland andtasteless store brands, Starbucks only purchased Arabica beans from acarefully selected network of suppliers across the globe; includingplaces like Sumatra, Kenya, Ethiopia, and Costa Rica. Arabica beanswere selected because the bean’s chemistry could withstand highroasting temperatures, resulting in a richer flavor. Starbucks alsosought vendors who sold products that would protect, and evenenhance, the Arabica’s flavor. This required the formation of partnerships across the globe with coffee brewing equipment supplierswho provided products that captured the essence of the coffeebrewing tradition. Simplicity was valued over advanced technologybecause the machines Europeans and others had been using to brewcoffee for centuries often proved the most effective in delivering therichest flavors.

Starbucks Reinvented

It was not until Howard Schultz, current Chairman and Chief GlobalStrategist of Starbucks, came to the company in 1982 that a vision forexpanding the scope and reach of the Starbucks brand came underserious consideration. Schultz realized the powerful businessopportunities that lay ahead of the company if he could preserveStarbucks’ core values while exposing a wider range of people to thebrand. The fledgling company had seen great success in converting itssmall group of loyal Seattle customers into coffee enthusiasts, butSchultz recognized that the conservative business plans of early2

of 21|

Page

Starbucks management hindered the company from reaching otherpotential coffee lovers. Schultz saw that the next logical step forStarbucks was to begin serving freshly brewed coffee by the cup inevery store. This realization came to Schultz following a trip to Italy,where he witnessed the bustling café culture where people stopped tosocialize at various points throughout the day, always with a freshcappuccino or espresso in hand. He reasoned that Americans wouldembrace the concept of consuming fresh coffee in a sociablecoffeehouse atmosphere. Transforming Starbucks from a coffee retailer into a cafébusiness resulted in several important competitive advantages. First,it increased quality control because the coffee was brewed by its ownknowledgeable employees. Second, Starbucks captured the businessof Seattle’s business community who loved high quality coffee, buthad hectic schedules. Starbucks made enjoying good coffeeconvenient, thereby enabling the entire community to enjoy all thebrand had to offer. Lastly, incorporating a coffee service aspect intothe business differentiated Starbucks from its coffee retailcompetitors, who were quickly growing in Seattle and in other majorAmerican cities.With the coffeehouse model as the primary focus of thecompany’s retailored business plan, Schultz began to concentrate onreshaping Starbucks’ brand identity. As the company entered a periodof explosive growth through market expansion it needed a reinventedimage that captured the elegance of European coffeehouse culture,but was familiar enough to appeal to a broad range of Americans.Schultz’s previous coffeehouse, Il Giornale, had acquired Starbucks in1987, but Schultz recognized that keeping the Starbucks name waspivotal to the brand’s success. It was already familiar to Seattleites,patrons of the nationwide mail order business and was morememorable than Il Giornale. The name was inspired by Starbuck, adeckhand in the classic American novel

Moby Dick

. For this reason, thelogo included an image of a mermaid done in a woodcutting style. The Starbucks name captured all the aspects of Schultz’s innovativecoffeehouse concept; it was bold yet not overwhelming, mysteriousyet not foreign, and romantic yet not impractical.

Creating a Look

Starbucks needed to shape the look and feel of the environment of itsstores to reflect the synergy of Italian elegance and Americaninformality that Schultz envisioned for his unique coffeehouse model.First, the original Starbucks logo was updated to appear morecontemporary and the color was changed from the original earthenbrown to the green used by Il Giornale. Next, each of the originalStarbucks stores was redesigned so that they echoed the romanticatmosphere of Italian coffee bars.3

Category:	Uncategorized.
Rating:
Upload Date:	05/28/2009
Copyright:	Attribution Non-commercial
Tags:	This document has no tags.

Documents

People